Tags: Investors | Haven | Junk | Bonds

Investors Find New Safe Haven: Junk Bonds

Monday, 01 Aug 2011 08:54 AM

The debt-ceiling crisis in Washington has created a new safe harbor: junk bonds. Investors are avoiding Treasurys and high-grade corporate bonds amid uncertainty from the debt-ceiling crisis.

But bonds issued by highly indebted companies and emerging markets are in demand as they are perceived to hold up well in the event of a default in the U.S., which would affect lower-risk debt like Treasurys or top-grade corporations, experts say.

Nothing else will, some market watchers say.

"What's benefiting the [high-yield] corporate market today is a lack of investment alternatives," says Jim Casey, co-head of leveraged finance at JPMorgan Chase, according to the Wall Street Journal.

Demand is even spurring some companies to issue fresh bonds.

"What we're seeing this week is a resurgence of opportunistic financings," says Ben Burton, managing director in leveraged finance at Barclays Capital in New York, the Journal adds.

Companies are "taking advantage of what they see as attractive conditions to do deals.”

Meanwhile, the deal among Democrat and Republican leadership to narrow deficits in exchange for lifting the government's $14.3 trillion debt ceiling will bring only short-term relief to the country's anxious capital markets, says Mohamed El-Erian, CEO of Pimco, the world's largest bond fund.

"This relief will be short," El-Erian tells ABC, hours before leaders from both parties announced a deal.

"The rest of the world is watching, and this will do very little to reduce the concern that the rest of the world has about the role of the U.S. in the global economy."

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The debt-ceiling crisis in Washington has created a new safe harbor: junk bonds. Investors are avoiding Treasurys and high-grade corporate bonds amid uncertainty from the debt-ceiling crisis. But bonds issued by highly indebted companies and emerging markets are in demand...
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2011-54-01
Monday, 01 Aug 2011 08:54 AM
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